Corrected: 20-Jan-2013
Post office Term Deposit better than bank fixed deposit?
Post office offers variety of small saving schemes. One among is Term deposit. Post office term deposit is similar to bank fixed deposit. However, there are several features associated term deposit offered by Post office.
What is Post office term deposit?
Post office offers term deposits for 1 year, 2 years, 3 years and 5 years period. Any investor who wants to invest a lump sum amount for such periods can invest in such term deposits.
Who is eligible to open?
Any individual adult either single or jointly can open the account. Group accounts, institutions, trust and welfare funds are not eligible to open the account.
How much can we invest?
- Minimum of Rs 200, multiples of Rs 200 thereof.
- Maximum – No limit
Penalty for premature withdrawals
If the time deposit is withdrawn from 6 months period to 1 year period, only simple interest rate would be payable
If the time deposit is withdrawn from 1 year, but before the maturity period, then while interest would be paid based on the interest rate applicable for the tenure the time deposit is there, one percent penalty would be deducted.
What are the rates of interest?
Below are the rates of interest. Interest would be compounded every quarter.
- 1 year – 8.2%
- 2 year – 8.3%
- 3 years – 8.4%
- 5 years – 8.5%
What about Tax
- If you invest for 5 years in post office term deposit, you would be eligible for income tax exemption under 80C.
- There is no TDS deducted on the interest.
Is post office term deposit is better than bank fixed deposit ?
Below are the major differences among these two
- Tenure of deposit
- Term deposit offered by Post office is available for 1, 2, 3 and 5 years period
- Bank fixed deposits are available from 15 days period to 10 years period.
- Interest rates:
- Post office deposit rates are between 8.2% to 8.5% p.a.
- Bank fixed deposit interest rate varies between 7.5% to 9.25% p.a.
- TDS
- For Post office term deposit, there is no TDS deducted by Post office.
- For Bank Fixed deposits, TDS would be deducted on interest.
- Opening the deposit account
- Post office term deposit can be opened only by adult individuals either single or jointly. Others cannot open the deposit account.
- Bank fixed deposits can be opened by any one
- Safety
- Post office run by Govt. of India, hence term deposits are 100% safe.
- Bank fixed deposits does not provide any safety. However investment up to 1 lac in bank fixed deposits are covered under insurance.
Conclusion: Term deposits offered by Post office and bank fixed deposits have their own advantages and disadvantages. Select the fixed deposit which is best suitable for you to maximize your returns.
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Suresh
Post office Term deposit better than bank fixed deposit?
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Hi Suresh,
Good article, I am thinking of investing in the PO 5 year fixed, about £20,000, as it is 100% safe. But on maturity how do we get the money back to UK in £'s
Pankaj
Pankaj, If you are NRI, you cannot invest in post office schemes. If you have your spouse or parents at India, you can invest indirectly in their name. The rate of interest is already specified in this article, based on this you would get interest.
I think fixed deposit is better than post office scheme..
Sir,my father want to invest around 10 lakh.He require a fix amount to be get every month.What would be best investment options available….with regards
Prasad, You can invest in Bank FD, Post office MIS scheme to get regular fixed monthly income. These are safer investment options for your father.
I want to invest the money in which I require a fix amount per month for a portion and balance should be FD
Hi
I am going to open a fixed depost account for an amount 40k. I came to know that if we select 5 year tenure for fixed deposit we can avoid paying tax for the amount deposited.
Can someone please tell me what if I withdraw the amount after 1 year. Still it is acceptable and I will be tax saver for 40k
Regards,
Abhinav
Abhinav, Often people get confused about Tax saving options Vs Tax free options. If you invest in 5 year FD, you can claim tax benefit for the entire amount under section 80C in your income tax statement. However the returns from FD are still taxable. e.g. if you invest Rs 50,000 in 5 years bank FD, you can claim Rs 50,000 as tax benefit under section 80C (where max benefit is Rs 100,000). However, every year you would get interest on Rs 50,000 which is taxable and would be added to your income. I understand that some banks are providing facility to withdraw such deposits with penalty.
Thanks a lot sir,